The reading matched April’s 13-month low, defying economists’ expectations in a Reuters poll that had predicted a rise to 3.0%. The surprise stability briefly weighed on sterling, which slipped slightly against the US dollar, while financial markets adjusted expectations for future rate hikes.
Analysts had anticipated upward pressure on prices, partly linked to global energy tensions, but softer costs in several food categories helped offset increases elsewhere. Prices for meat, vegetables, dairy products, and heating oil fell compared with April, helping balance higher transport costs such as airfares and petrol.
The Office for National Statistics noted that inflation has remained above the Bank of England’s 2% target for most of the past five years, even though recent months have shown signs of cooling.
Earlier projections from the central bank suggested inflation could climb above 3.5% later this year and, under more severe scenarios, potentially exceed 6% in the following year.
Markets have recently been influenced by easing geopolitical tensions following a preliminary US –Iran understanding aimed at reopening key oil shipping routes through the Strait of Hormuz, a development expected to stabilize energy supply chains.
Economists say the latest data supports a cautious stance from policymakers.
“Inflationary pressure remains uneven, which justifies a careful approach from the Bank of England,” said Yael Selfin, chief economist at KPMG.
Most analysts expect the Monetary Policy Committee to vote 7–2 in favour of keeping rates unchanged at 3.75% during Thursday’s meeting, as officials continue to balance slowing price growth against persistent underlying pressures.
Bank of England Governor Andrew Bailey has indicated that policymakers still have time to assess the broader economic impact of global tensions. However, some committee members remain concerned that businesses may pass rising costs on to consumers or that public confidence in the inflation target could weaken.
Britain has faced stronger than average exposure to recent global energy disruptions due to its reliance on imported natural gas. Manufacturers reported raw material costs rising by 8.7% year on year in May, the fastest increase since early 2023.
Services inflation, closely watched by the central bank as an indicator of underlying pressure, rose to 3.7% from 3.2% in April, in line with forecasts. The increase was partly driven by a sharp 10.3% rise in airfares, which are typically volatile and influenced by seasonal travel demand.
Core inflation, which strips out food, energy, alcohol and tobacco prices, rose modestly to 2.6% from 2.5%, slightly below forecasts.
Goodness Anunobi
Follow us on:
